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IMF sees less gloom for Russian economy

The International Monetary Fund (IMF) has upgraded its outlook for the Russian economy, forecasting a less severe downturn for the sanctions-hit country this year and a 'mild recovery' in 2016.

The International Monetary Fund (IMF) on Thursday revised its economic forecast for the Russian economy down to a 3.4-percent contraction this year compared with a 3.8-percent downturn it said it expected last month.

In 2016, the Russian economy could even climb out of the doldrums, the lender of last resort said, forecasting a "mild recovery."

"GDP is expected to decline by 3.4 percent in 2015 driven by a contraction in domestic demand and weighed down by falling real wages, higher cost of capital and weakened confidence," the IMF said in a statement.

Ernesto Ramirez Rigo, the head of the IMF mission to Russia, told a news conference in Moscow that the Russian government's "anti-crisis package has helped to stabilize the situation."

Nevertheless, the Russian economy still faced "significant risks mainly caused by oil prices and geopolitical tensions" that were "mitigated by large buffers."

Low growth in the medium turn

Russia is currently suffering from the effects of a major currency crisis at the turn of the year triggered by Western sanctions over the Ukraine conflict as well as the effect of plunging oil prices.

Russians' spending power and consumption collapsed amid spiraling inflation which forced the Russian authorities to spend some of their reserves on support for the financial sector and to cut spending.

As the IMF is expecting a pickup in economic activity next year, leading to "low growth in the medium term," the government in Moscow is more optimistic, forecasting a contraction of only 2.8 percent in 2015.

Finance Minister Anton Siluanov, after meeting the IMF's mission members on Thursday even suggested the contraction could be no more than 2.5 percent. On Twitter he reportedly said the "situation in the financial sphere is seeing a trend towards stabilization."